1972 (7) TMI 1 - SC - Income Tax

Whether the price mentioned in the deed of conveyance can be rejected by the department while determining the actual cost - if circumstances exist for going behind the valuation as also the allocation given in the deed of conveyance, it was and is open to the income-tax authorities to determine the valuation as well as the allocation between depreciable and non-depreciable assets - assessee s appeal is dismissed

Issues Involved:
1. Competence of the Income-tax Officer to go beyond the conveyance and fix a valuation of the assets.
2. Inclusion of goodwill in the valuation of assets.
3. Determination of the original cost of assets for depreciation purposes.

Detailed Analysis:

1. Competence of the Income-tax Officer to Go Beyond the Conveyance and Fix a Valuation of the Assets:
The primary issue was whether the Income-tax Officer was competent to go beyond the conveyance deed and fix a valuation of the assets on his own. The High Court held that the Income-tax Officer was indeed competent to make a fresh computation of the value of the assets if justified by the facts and circumstances of the case. The Tribunal had observed that the assessee initially accepted the valuation in its balance sheet, and no appeal was made to higher authorities. The Tribunal also noted that the Income-tax Officer had the right to verify the valuation when a settled practice was sought to be reopened. The Supreme Court upheld this view, stating that it is open to the income-tax authorities to determine the actual original cost if circumstances suggest a fictitious price or fraud.

2. Inclusion of Goodwill in the Valuation of Assets:
The assessee contended that goodwill was not included in the valuation given in the deed of conveyance. However, the Tribunal and the High Court found that the valuation of Rs. 6 lakhs included goodwill, as indicated by the expert reports and the allocation made by the Income-tax Officer. The Tribunal noted that the figures in the deed were arbitrarily put and lacked a clear-cut break-up, suggesting that goodwill was not explicitly provided for in the valuation. The Supreme Court agreed with this assessment, emphasizing that the income-tax authorities could ascertain whether goodwill was included in the consideration by examining the evidence.

3. Determination of the Original Cost of Assets for Depreciation Purposes:
Section 10(2)(vi) of the Indian Income-tax Act, 1922, requires the original cost of the asset to the assessee to be determined for depreciation purposes. The Supreme Court referenced the Privy Council's decision in Commissioner of Income-tax v. Buckingham Carnatic Co. Ltd., which established that the original cost should be the cost to the person being assessed, not the previous owner. The Court reiterated that the original cost is a question of fact to be determined based on evidence. If there is evidence of a fictitious price, fraud, or collusion, the income-tax authorities can refuse to accept the price mentioned in the deed and ascertain the actual original cost. The Supreme Court also referenced its judgment in Jogta Coal Co. Ltd. v. Commissioner of Income-tax, affirming that the cost for depreciation allowance is the cost to the assessee.

Conclusion:
The Supreme Court dismissed the appeals, affirming that the Income-tax Officer was competent to go beyond the conveyance deed and fix the valuation of the assets. The Court also upheld the findings regarding the inclusion of goodwill in the valuation and the determination of the original cost for depreciation purposes. The principles outlined by the Court provide guidance for future assessments, allowing the income-tax authorities to investigate and determine the actual original cost and allocation of assets when justified by the circumstances. The appeals were dismissed with no order as to costs.

← Previous Next →